Jason Goldberg, a banking analyst at Barclays Capital, forecast a 14% hit to industry net income in 2013 from the legislation.

Goldman Sachs Group
GS, -0.02%
may also be among the most effected by new regulations, but analysts at the firm don't cover the stock. Roger Freeman, analyst at Barclays Capital, noted that Goldman may have to sell a lot of its private-equity and real-estate investments when the legislation kicks in.

The new rules, which President Barack Obama could sign into law by July 4, represent the biggest regulatory changes for banks and brokers since the Glass-Steagall Act was introduced after the Great Depression. Parts of the legislation that could have the biggest impact include derivatives reform, limits on proprietary trading and a potentially potent, new consumer-finance watchdog. Read about the legislation.

"This bill will likely have a significant negative impact on the banking industry's earnings through fee reductions, higher costs (both regulatory and implementation), and new restrictions, in addition to tying up capital," Goldberg wrote in a note to investors on Monday.

Capital One Financial
COF, +0.87%
a leading credit card issuer that also owns a large banking business, may be the most effected, seeing earnings drop by 28%, the analysts added.

Other credit card companies, American Express
AXP, +0.24%
and Discover Financial Services
DFS, +1.22%
may experience a profit hit from new regulation of 16% and 20% respectively, Goldman analysts estimated.

$19 billion surprise

One of the biggest surprises was the late addition of a $19 billion assessment on financial institutions with more than $50 billion in assets and hedge funds with over $10 billion in assets, Goldman noted.

This assessment will be collected by the Federal Deposit Insurance Corp. over four years and be placed with the Treasury Department.

It's not clear how this unexpected cost will be imposed on the industry, but Goldman assumed that the largest banks will pay for roughly three quarters of it. That could leave Bank of America paying just over $700 million a year for four years, Goldman analysts estimated.

J.P. Morgan and Citi could each pay more than $600 million a year, while Wells Fargo might pay $368 million and Morgan Stanley $247 million a year, the analysts forecast.

Prop trading

The parts of the new regulations known as the Volcker rule ended up being a little more negative for firms with large proprietary trading operations and slightly better for banks with big hedge fund and private-equity businesses, the Goldman analysts said.

Proprietary trading, in which banks buy and sell securities with their own money and for their own benefit, will be banned. But there's an exemption for market making and hedging, Goldman analysts added.

Transactions that include "a material conflict of interest" between banks and their clients, customers or counterparties will be forbidden. Also out are transactions that result in "material exposure to high-risk assets or high-risk trading strategies," the analysts noted.

"The proprietary trading proposal on the margin is more restrictive than previously thought," Ramsden and his colleagues wrote. "The material conflict of interest clause leaves wide room for interpretation and hence the impact is uncertain."

Goldman Chief Financial Officer David Viniar said earlier this year that proprietary trading, in which institutions trade with their own money for their own benefit with no client involvement, accounts for roughly 10% of annual revenue at Goldman.

Goldman generated more than $45 billion in net revenue in 2009, so a ban on prop trading last year might have knocked about $4.5 billion off that total.

Hedge funds, private equity

The Volcker rule also limits banks' investments in hedge funds and private-equity funds to 3% of fund assets or 3% of their Tier 1 capital, Goldman analysts noted.

"One crucial question that remains unclear by all accounts at this point is whether direct private equity and real estate investments will be covered by the 3% cap, or whether they will instead by banned entirely under the proprietary trading elimination," Freeman, the Barclays Capital analyst, wrote in a note to investors.

This is particularly important for Goldman Sachs because the firm has $17 billion in corporate private equity and real estate investments, Freeman added.

"Even if permitted though, Goldman Sachs would likely have to divest a significant portion of these investments, as the preliminary calculations suggest that Goldman would be limited to a total of $2 billion in investments under the 3% of Tier 1 capital limit," the analyst said.

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